Financials – in particular banks - led the decline, with Bank of America down 5.8% and JPMorgan Chase & Co falling approximately 3%.
The S&P financials sector lost 2.9% on Tuesday, with banks dropping 3.9% in the biggest fall since the EU referendum.
US treasury yields had been falling since last week when the US Federal Reserve raised rates, leading to lower interest rates on loans, hurting the banking sector, according to Reuters.
Yields on 10-year T-bills fall dipped 4.9 basis points to just under 2.43%.
The small-cap Russell 2000 also underperformed, dipping by around 2%.
Elsewhere, technology and industrials each fell 1.5% on the day while utilities – seen as a safer haven for income investors – rose by 1.4%.